This article first appeared in The Edge Malaysia Weekly on June 19, 2023 - June 25, 2023

In today’s boardrooms, there are few conversations that dominate like that of the sustainability transition. The trend was highlighted in the World Economic Forum’s Global Risk Report 2023, which gathered the views of thousands of business leaders on the importance of sustainability considerations to their company’s resilience and competitiveness. The report said environmental and social risks were among the top five risks that companies would need to navigate over the next two to 10 years.

In addition, fast-evolving legislative changes by our largest trading partners are reshaping trade expectations to include sustainability as the third credential, besides price and quality, as a licence to operate. Hence, sustainability transition is a key transformation strategy for businesses, coupled with target setting backed by credible data on environmental, social and governance (ESG) aspects.

Despite overwhelming data supporting sustainable practices as good for business, progress has been slow in Malaysia. With insights from more than 260 corporations and small and medium enterprises (SMEs) nationwide, the Malaysia Businesses Sustainability Pulse Report 2022 by UN Global Compact Network Malaysia & Brunei (UNGCMYB) highlighted knowledge gaps, with less than half or 45% of Malaysian companies indicating that they are considering taking steps to ensure sustainable trade but require greater understanding to begin.

Additionally, the report said that only 27%, or about one in four companies, had appointed a chief sustainability director, manager or officer to spearhead sustainability strategy and initiatives. Alarmingly, almost 50% of these companies had not established a sustainability budget.

The following are some of the key challenges faced by Malaysia’s private sector:

● Policy gaps — Fragmented policy and regulatory gaps in different sectors need to be addressed as various ministries introduce separate sustainability initiatives that may cause confusion, rather than promoting a best-fit approach for business. This results in ESG tunnel vision for a broad range of stakeholders, and in some cases, difficulty in linking business impact to national aspirations for the United Nations’ Sustainable Development Goals (SDGs).

● Business-as-usual mindset — Innovative thinking that considers ESG double materiality is key to unlocking the competitive and resilient edge that would result from sustainability performance. Decision-makers must move from compliance to anticipating how to add value, especially in our highly subsidised economy where this support can be dismantled with little or no warning.

● Lack of sustainability expertise — Sustainability talents and experts are in short supply in Malaysia, which creates a twofold challenge: the difficulty of institutionalising sustainability across a business without having a dedicated focal point driving transformation. 

● Supply side incentive view — Malaysia’s existing incentive mechanisms are not fully driven from a demand side or end users’ perspective, which results in slower uptake or higher complexity for internal justification and buy-in for private sector decision-making.

As part of the world’s largest corporate sustainability initiative, UNGCMYB works to raise SDG ambitions by developing sustainability competencies across the private sector and providing the tools and resources needed to institutionalise the SDGs and the UN Global Compact’s 10 principles on human rights, labour, environment and anti-corruption in the business DNA.

This includes strategic programmes on climate action, water, living wage, gender equality and sustainable finance, as well as several localised digital sustainability platforms and resources, such as the SME ESG Hub for SMEs and sustainable supply chains, and a dashboard for greenhouse gas emissions — the zero carbon digital platform — developed in collaboration with Tata Consultancy Services Malaysia.

In addition, we are addressing the talent shortage by providing sustainability-related courses in our global and local academies, which provide localised content based on the Corporate Sustainability Practitioner Competency Framework developed in collaboration with Bursa Malaysia.

Despite economic headwinds, sustainability is a mega trend that is here to stay. It is critical that businesses realise that being sustainable means being competitive and resilient in the era of sustainable trade. No one business can do this alone, but rather all businesses can progress by being the needed change agents required for Malaysia to be a leading global sustainable trading hub.

Faroze Nadar is executive director of UN Global Compact Network Malaysia & Brunei

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.